In all cases, regular trade routes were established for users of the petroleum products from these refineries. Partly because of transportation costs, customers were often in at least relative proximity to the refinery, and over time three main markets developed for base oils and other refined products: the Americas; Europe, Africa and the Middle East; and the rest of Asia and the Pacific Rim. Until 10 or 12 years ago, these markets were relatively insular, with only an occasional opportunistic delivery crossing between them. For example, bright stock occasionally flowed from the U.S. to West Africa, or solvent neutrals from Argentina or Brazil to Northwest Europe.

Trade patterns changed when categories of base stocks began to expand. North American supply trended from API Group I to Group II oils, while new plants making Group II and Group III were built along the Pacific Rim. North America had Group II to spare, but it and Europe demanded more Group III than they produced internally. Meanwhile, most of the Group III and Group II production in Asia-Pacific was surplus to local demand and so could be directed elsewhere. At this point, base oil trade started to become truly global.

Of late there have been further developments. Group I material started to go long in the Far East, while remaining short in the U.S. and Europe. Prices started to falter in the Far East, particularly for Group I grades, but since the other markets were short or perhaps in balance, surpluses from Far East production started to find their way to lube blenders normally serviced by European and U.S. Producers.

Asian Group I deliveries stopped short of Europe, but many blenders and traders were considering orders for areas such as Turkey and other parts of the Eastern Mediterranean, such as Syria and Egypt. Such deals appear to have been relegated to the back burner for the moment, because prices in the Far East started to move upwards, and supplies from main-stream European producers have opened up slightly.

But the word is out, and Group I cargo movements from the Far East have alerted receivers in other parts of the world to look laterally for their base oil needs. Chinese main-land supply to West Africa, Middle East Gulf shipments to South Africa, Russian railroad deliveries to China and Group I shipments from Singapore to the U.S. are but a few of the new trading routes being experimented with by both sellers and receivers.

One important consideration for these new movements is the cost of freight. East-west freights have been attractive over the last year as the recession caused adjustments in trade balances. With options for vessels sailing west, players have taken advantage and have managed to maintain margins on base oils exported in that direction.

With new base oil production looming large in Qatar, Bahrain, China and South America, the supply scene may be about to change yet again. For example, the opening of new facilities in Qatar and Bah-rain will create a giant Group III supply hub in the Middle East and will affect current Group III supplies into Europe, while at the same time maintaining requirements for Group I stocks that must be blended with Group III to produce finished lubricants of higher specifications. New logistical patterns could be created again due to these large influxes of new supply.

Group II imports into Eu-rope from the U.S and Korea may also be affected, since a large ingress of Group III material could limit the requirement for these grades. Plans for a new Group II/III plant in Spain could further roil the scene.

Some players view the new trade patterns as a result of globalization of base oil markets, but essentially the opposite is true. It is the unique features of each market and the differences between them that have caused these patterns to develop, breaking down much of the conservatism on which the market has traditionally functioned. Economic factors that have affected some areas have not been present in other regions, and have stimulated varying rates of growth across the globe. These will continue to play a major part in the industrys supply/demand scenario.

The base oil market is experiencing change like never before, with supply sources constantly in a state of flux. These new production units are reshaping the market to an extent which makes almost anything possible from a supply and logistical stance. It will be interesting to see what the market comes up with next.